The rapid increase in the number of market research firms in China in recent years has led to a confusing picture where well over 500 firms are offering research and analysis of consumer behaviour. While most foreign investors are already avid consumers of market information and account for more than 80 per cent of the market, the use of market research among Chinese domestic firms is less established.
Their reluctance to devote resources to information gathering is not helped by the extremely variable quality of research purveyed by Chinese organisations. International firms, many reliant in part on local fieldwork companies to provide input into their own branded research products, are being forced to battle on, devoting considerable resources to the supervision and quality control of subcontractors.
Monitoring the media
For Western firms introducing their products onto the Chinese market, advertising is perhaps the most obvious interface between the manufacturer and the consumer. Television audience measurement is of particular interest here. US research firm ACNielsen-SRG uses a Who actually are the researchers?
Various types of firms are competing in the market research business. Their combined turnover was estimated to have reached US$42m-44m in 1996 and to be growing at an annual clip of around' 30 per cent.
Major international research firms such as ACNielsen, Sofres and Gallup are represented in China and offer a wide range of market research services from offices in China's major cities. These are supplemented by a number of smaller Western consultancies which offer specialised market research. Many of these were founded by the former employees of the major firms.
Advertising and public relations agenpanel of a few hundred households equipped with a meter which monitors viewing patterns. These 'people meters' were first introduced in Shanghai in 1996 and an expansion to cover Beijing and Guangzhou is planned.
ACNielsen also operates a television advertising expenditure index which covers 49 major cities ?a monitoring service which is extended to newspapers in the three major cities of Beijing, Guangzhou and Shanghai.
Sofres FSA is also building up its media monitoring business. The firm was formed in early 1995 when France's largest market research group Sofres acquired the Australian-owned Frank Small and Associates. The latter had already acquired 10 years' experience of conducting research in China.
In 1996 Sofres FSA formed a US$lm joint venture with the Central Viewers Survey and Consulting Centre (CVSC). The venture organises the world's largest television measurement panel which involves 11,800 households in 57 cities keeping handwritten diaries on their viewing of 500 television stations. But trying to get people in all these cities to keep diaries is a real organisational headache, admits Mr Mike Underhill, director of the firm's Beijing office. This cies also have a direct interest in market research in terms of monitoring both the likely and actual effect of their advertising and PR campaigns. Offering market research to their clients is a marketing tool in itself as well as forming part of the learning curve of both agency and client.
Data collected by Chinese entities, part of the legacy of state economic planning, is another rich source of market information. State organisations such as the Ministry of Foreign Trade and Economic Co-operation (Moftec), the China Academy of Social Sciences (CASS) and the State Statistic Bureau have established commercial offshoots offering information of value to foreign manufacturers. While considerable resources have gone into collecting the data, careful assessment of its usefulness is recommended to be carried out on a case-by-case basis.
year the enterprise known as CVSCSofres-Media plans to begin upgrading to electronic meters in the major cities.
Not surprisingly, advertising agencies are major users of consumer survey information and some have set up their own media monitoring. Grey Advertising, whose partner is the state-owned investment holding company China International Trust and Investment Corporation, produces an annual city survey known as Grey Chinabase. Coverage of the survey was expanded to secondary cities such as Chongqing, Wuhan, Hangzhou and Shenyang in 1997.
Since the pioneering quantitative market research of the 1980s, the demand for greater insight into the less-easily articulated psychological factors behind consumer behaviour has grown fast. The Taiwanese Field Force Group, which is affiliated to Louis Harris International, has introduced focus group facilities in six Chinese cities. During a focus group session, eight or so people are inter-viewed in a room equipped with a one-way mirror 'as well as cameras and microphones. While Field Force itself has 200 full-time employees, the facilities are also available for renting out.
The rooms allow clients to view the entire interviewing process, including the way that questions are asked and the body language of respondents. "Clients want to know if the moderator is asking the right questions and they might want to be able to change the questions," says Field Force researcher Elsa Lu. Focus groups are particularly useful, she says, for in-depth emotional analyses in areas such as packaging.
As the number of international brands available on the Chinese market increases, post-product-launch research is increasing in importance. Perhaps the most important element of this type of research is retail audits.
ACNielsen-SRG conducts a monthly retail audit covering more than 100 cities which the firm estimates provides data on 90 per cent of the market for foreign consumer goods in China. Product categories include personal care, household goods, food and beverages, baby foods and alcoholic beverages.
But with the rapidly changing retail environment .in China, an accurate regular audit requires updating and modification. The number of retail outlets is fast increasing, resulting in marked changes in shopping habits. In addition, foreign retailers are entering the market by using a variety of strategies, some ofwhich stretch the rather murky legal framework laid down by the Chinese government.
At the same time, the structure of domestically-owned supermarkets is in flux with the emergence of a new breed of chain stores. In this fiercely competitive environment it is perhaps not surprising that some market research firms have had difficulties in gaining the co-operation of retailers to conduct audits.
Some are looking for an alternative approach. Sofres FSA does not currently offer a retail audit in China but is planning to be the first international research company to roll out a consumer panel system in China later this year. Consumer panels consist of a very large sample of permanent respondents who are questioned on a weekly basis about purchasing habits. Sofres FSA is aiming at a 3,600 household panel covering four major cities, with questions covering all members of each household.
Getting through to consumers
An underdeveloped telecommunications network and cultural sensitivities can make China a difficult place to conduct market research. "It's more difficult to conduct market research by telephone in China because people are still suspicious of how the information will be used," says Ms Alison Hui, director of customised services for ACNielsen China. The incomplete penetration of telephone services across the country also means that phone surveys do not always give a representative sample.
In some cases research firms have to adapt their fieldwork methodologies to take account of cultural factors. Sensitivities are a special problem, says one research executive, when designing questionnaires to investigate feminine hygiene products or male impotency cures. Some products may even have political implications ?such as testing the demand for cars designed for largerthan-average families.
But unfamiliarity with market research also has its positive side, in that Chinese consumers are often less cynical of market researchers than their counter-parts in more developed markets "Gaining co-operation is a problem in any market. Here it is better than any-where else. It's certainly better than Hong Kong where you will often not even be let in and have to conduct an interview through an iron grille in the door," says Sofres FSA's Underhill.
ACNielsen has found that response rates for types of research which in Hong Kong usually fall below 50 per cent may be as high as 90 per cent in north China. But respondent resistance is increasing, the company has found, with rates in south China (in the marketing penumbra of Hong Kong) falling off to around 70 per cent.
Almost everybody agrees that face-to-face interviews are the best. The relatively low cost of labour in China means that large numbers of interviewers can be hired to go and meet people door-to-door or in supermarkets or cafes. The less frenetic pace of life in China means that people can stand a longer interview time, believes Hui, who says that an interview time of between 30 and 45 minutes is often not a problem.
Most foreign firms use a combination of quantitative and qualitative information to assist with the marketing of their products in China. Most of the international research firms are geared up for this and offer a variety of customised research packages.
In practice, this customised research is often separated from areas where the need for market information may be more general and may coincide with other firms' requirements. It is often more cost-effective to seek general market information through syndicated research arrangements.
A major syndicated research product is being launched this spring by British-owned BMRB International which has .seamed up with Sinomonitor, a commery a company set up by China's State statistical Bureau. "A syndicated survey spreads the cost of getting data that would be extremely expensive on an individual client basis," says Mr Paul Dickinson of BMRB International's London office. BMRB is assisting its Chinese partner to ensure a consistent approach to the collection of data. "We ire tying local knowledge and a local 000st structure to our knowledge and experience," he adds.
The China Marketing and Media
Survey incorporates the results of 50,000 interviews in 12 major cities and covers data on over 90 products and 3,000 brands- as well as demographic, media, lifestyle and attitudinal issues. It claims to be the largest single source survey ever conducted in China.
Gallup published the second of its surveys of Chinese consumer attitudes and trends in 1997, using a sample of more than 3,700 people. The surveys depict a comprehensive profile of life attitudes, buying behaviour, income levels in addition to quality expectations and standards.
Mr Michael Guo, director of China operations for Gallup, stresses the value of tried and tested quantitative model-ling techniques. He believes that one of the major problems with market research in China is a lack of transparency in sampling. He claims that Gallup is able to offer the only "truly random sampling" available in China, as opposed to what he terms "convenient sampling" offered by many other firms.
Guo admits that there may be problems in applying models designed in developed countries to the China market. "Sometimes US models may not be entirely applicable where these models rely on psychological factors," he says. Gallup is currently conducting research into the use in China of its international five-point scaling system used to convert feelings (such as agreement/ disagreement or approval/ disapproval) into a numerical figure "Is a four in the US the same thing as a four in China?" he asks.
Based on experiences in the Japanese market, two possible distortions may play a role. When being interviewed by a stranger, Chinese people may tend to give higher scores due to a desire not to offend the interviewer. A second possible difference could be a tendency for Chinese people to hedge their bets by choosing scores closer to the middle of the range, particularly when being interviewed by someone who is known to them.
One question is whether or not to make use of local Chinese research firms. As with many local sourcing issues, the choice revolves around a delicate assessment of quality control and pricing. Not surprisingly, the international firms are keen to justify higher pricing levels by stressing their competitive edge in terms of quality.
"With local firms the quality standards are not up to international levels. They use very simple techniques, they do not have sophisticated modelling and quality control is not strict," says ACNielsen's Hui.
Global codes of conduct
Gallup's Guo points out that international firms continue to pay more attention to adherence to globally recognised codes of conduct laid out by organisations such as the American Marketing Association, the International Chamber of Commerce and the European market research organisation ESOMAR.
Lack of care in supervision of sub-contracting research is another potential drawback of the local firms, many of which have fewer than a dozen full-time employees and are therefore forced to subcontract work out asked to conduct large sample surveys.
"Often they use part-time students to conduct door-to-door interviews," says Field Force's Lu. "These students might not actually go to the houses and just make up the replies instead. Also, some-times they might not pick up on the way that different questions in the survey are inter-related, particularly if one question comes at the beginning of the questionnaire and another at the end."
But it should be noted that most of the international firms, which have a limited number of full time staff working in China, are also forced to outsource for at least part of their fieldwork requirement.
International firms are in general required to have a Chinese joint venture partner. "But joint venture partners tend to be fairly quiet and most international firms pitch themselves as fairly independent of their joint venture partners," says Underhill of Sofres FSA.
Seeking a middle way
Hong Kong-based Asia Market Intelligence (AMI), which has divisions in eight countries in the region, has chosen not to go down the joint venture route in China. Instead it has relied on developing strong relationships with China-based agents in major cities before employing them directly in the company. "These managers have been selected after working as agents for a long time," explains Mr Darryl Andrew of AMI's Hong Kong office. Many of the general managers were originally heads of their own independent fieldwork companies.
"Expansion has been slow compared with what some people would have wanted," continues Andrew, but he believes that AMI's strategy is now paying dividends, with the firm enjoying an 80 per cent rate of repeat business. "While other international companies have expanded very quickly, we have not over-stretched ourselves and have been awarded projects because companies have been dissatisfied with their original suppliers."
While a full service is currently offered in Beijing, Shanghai and Guangzhou, the company is flexible when deciding its mode of expansion to secondary cities. Commonly staff are first sent out to identify promising local fieldwork companies in these cities, while retaining the option to retain its own interviewers if the existing local ,companies prove unsatisfactory.
The second option may require a longer time lag but eventually result in more reliable data. When the situation on the ground has been investigated, AMI will contact its client and explain the different options.
Many believe that the difference between the international research firms and the local firms has lessened in the past five years but there is still a considerable gap in the market to be bridged. Ms Julia Ye, of the Beijing office of US Consumer goods company Benckiser, is using the media and retail audit services of ACNielsen to help the introduction of detergent and cleaning product brands such as Dosia and Calgonit into the China market, but also uses the services of two local research firms.
"There's very high quality research available but it is very expensive," says Ye. "It is very difficult for us to identify companies that have a middle way in terms of English language skills, design and general planning. The most annoying thing is that people from local companies can't help me interpret the data to develop marketing strategies."
Lack of researchers
"From the suppliers' perspective, the biggest problem is the lack of middle-level researchers with three to four years research experience," believes Mr Gilbert Lee of Research International China. This is a joint venture formed in 1997 between South China Marketing Research and the UK-based Research International Group, with 300 full-time staff in China and branches in six main-land cities.
Sofres FSA's Underhill notes that the acquisition of pioneering Hong Kong-based research firms by large Western firms created a lot of turbulence in the industry, leading to many staff leaving these companies to set up their own research firms. "This has created a second tier with quality better than government departments and pricing in between the purely Chinese firms and the international firms," he believes.
Dr Huixing Ke of Diamond Marketing Research (part of the Mori group) concurs. "Great differences existamong [local firms]," she says. "There are some really very good companies with high quality and standards but not very high prices… However, there are also quite a few firms with very poor quality."
Beijing-based Horizon Research Group is one local firm with a specialisation in telecoms research, a sector which makes up about 40 per cent of its business. It has recently worked on behalf of the US research firm Roper and Japanese-based RND and has provided information to multinational clients such as Motorola and Ericsson.
Mr Victor Yuan, who helped to set up the firm, was originally a research analyst with the Ministry of Justice. He says that Horizon provides "good basic information" but that its dealings with inter-national research firms with a substantial China presence are limited because these firms are beginning to view Horizon as a potential competitor.
Expanding the target
Gallup's Guo says that international firms currently account for about 90 per cent of their revenues but believes that opportunities will come from a rise in the market research spending of Chinese domestic companies. Noting the rise in advertisingspending (which often paves the way for increased market research investment), he estimates that these firms may account for as much as 50 per cent of the market in five years' time.
While part of the problem is that Chinese companies simply do not have enough money to afford the services of the international research firms, education is also viewed as important. In August 1997 Gallup conducted a week-long training programme on market research designed mainly to introduce market research concepts to domestic firms. "Local firms may spend money on advertising and recognise a rise in their sales but often they do not have a clear idea about what their target market is," says Guo.
For market research firms wanting to develop their full potential in servicing local Chinese firms in the next century, a degree of co-operation will be required among international firms, believes Ye. The establishment of a Chinese association of market research companies would be a step forward here.
"We think it is very important ate necessary to have an organisation where the research companies and researchers can communicate, exchange their ideas and experience, set up research standards and pricing, deal with training and education and get in touch with associations worldwide," she says.